Embraer Expected to Report Improved Q3

November 2, 2011

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Brazil's Embraer the world's third-largest commercial plane maker, is expected to post higher third-quarter revenue and operating profit on rising deliveries, but lower net income than a year ago when tax credits lifted its bottom line.

Embraer's net income is seen declining 19 percent from a year earlier to USD$80 million, while net revenue likely jumped 36 percent to USD$1.36 billion, according to a poll of analysts.

The higher revenue is a result of increased deliveries in the big-ticket commercial aviation sector, which is seen boosting the company's operational profitability.

Embraer delivered 28 regional commercial aircraft from July to September, compared with 20 commercial jets in the same period of 2010. The manufacturer also closed the quarter with USD$16 billion in firm orders from clients, up from a backlog of USD$15.8 billion three months before.

The solid results come despite a global economic slowdown that has led rival Bombardier to cut production of its CRJ regional jets as airlines delay new orders.

The earthquake in Japan this year interrupted suppliers' output, pushing back nearly half of Embraer's deliveries this year to the fourth quarter.

Last month Embraer reaffirmed its target of delivering 220 commercial and executive jets during the year, after delivering 122 from January to September. Investors are watching closely for any signs of the plane maker missing its ambitious target.

Earnings before interest, taxes, depreciation and amortisation, EBITDA, is likely to nearly double to USD$160 million.

The company's EBITDA as a share of net revenue, a measure of profitability known as its EBITDA margin, is seen nearly 4 percentage points higher than a year earlier, at 11.7 percent.

Still, Embraer's net profit is expected to slip from a year earlier, when tax credits lifted its bottom line.


Analysts will also be watching quarterly results for signs of Embraer's strategy for developing new commercial aircraft.

Embraer is the world's biggest producer of regional planes for 70 to 122 passengers, but it faces upstart rivals for the segment from Russia, Japan and China.

The outlook is made tougher as industry leaders Airbus and Boeing target regional aviation in order to offset declining orders for larger aircraft.

Airbus and Boeing are equipping their top-selling planes with new engines offering greater fuel efficiency, while Bombardier is developing a C-Series jet in the 100- to 149-seat long-range jet category dominated by the larger rivals.

Embraer is evaluating a new family of jets or an upgrade of its biggest aircraft, the Embraer 195.